A number of economists have suggested that the world economy has become “decoupled”, and that a recession in the US may not cause a recession elsewhere.

If the latest information coming out of Japan is any indication, these economists are wrong, as Japan seems to be heading into a recession too, though one could argue that the 1990s Japanese recession still hasn’t fully ended.

Not surprisingly, this driven the dollar up, and it hits a 7-month high vs the Yen, ¥109.56.

In the ongoing GSE soap opera, the Treasury Department has hired Morgan Stanley to look at at the financial structure of Fannie Mae and Freddie Mac.

There was a competitive bid process to select Morgan, though I still wonder if this is prudent oversight, or the fox guarding the hen house.

In either case, I think the fact that Freddie Mac has cut dividends after posting an $821 million loss, about 3 times what was expected, was a sensible move.

Dividends are for when you make a profit.

The monoliner insurers are not a soap opera though, they are farce, and the latest case is Ambac claiming a $823.1 million profit, which appears to be entirely due to an accounting change:

Ambac, once the second-largest bond insurer, reported a $1.7 billion net loss in the first quarter after a $3.3 billion loss in the fourth quarter of 2007. A rise in the risk premiums on Ambac’s own debt in the second quarter lowered the value of bond guarantees, which was allowed to be reflected as a gain under new accounting rules, resulting in the quarterly profit.

Ambac rose 35 cents, or 7.4 percent, to $5.08 at 10:08 a.m. in New York Stock Exchange composite trading.

Ambac and other financial companies are taking advantage of the accounting standard change — intended by rulemakers to expand so-called mark-to-market accounting — to report gains when market prices for their liabilities fall.

I’d appreciate a translation from accountant-speak, but it appears to me that they are profiting from the fact that no one is willing to pay face value on the debts that they owe.

In real estate, nirtgage applications rose last week, though only a little, and the week to week numbers are, as I always remind my reader(s) noisy. It’s still way down.

In energy, oil fell on reports of increased inventories to $118.58/bbl, and
retail gasoline fell again. It’s now $0.25 off of the record, so you save two bits a gallon.

Finally, we note that when the US gets a cold, Mexico catches pneumonia, particularly in rural villages, where the economy is even more dependent on remittances.

The depressing thing is that on a per capita basis, Mexico is solidly in the middle of the world in terms of wealth, and if a bit more could be pried from the top 1-2%, everyone would do better…..But I forget…that’s socialism, so we deal with hoards of economic refugees in the US instead.